EPISODE #8 WILL THIS BE NIRMALA SITHARAMAN'S MOMENT
The FM has promised to build on the government's ability to contain the pandemic losses and deliver a once in 100-year budget.
Hi Everyone,
A very happy Monday to you.
Last week was an unfortunate blot in the history of democratic India. On Republic Day a section of agitating farmers swarmed the historic Red Fort and hoisted a flag other than the tricolour. Tragic to say the least. If you ask me, at the cost of sounding harsh, this is tantamount to treason.
This apart the much awaited Economic Survey reviewing the covid-19 disrupted Indian economy was tabled in Parliament by Finance Minister Nirmala Sitharaman. I weigh in and draw out possible clues to the shape and form of the Union Budget being presented today. The big question is whether this union budget will be the ‘economic vaccine’ India so desperately seeks?
Thank you Naveed Ahmed for the inspiring picture of the tri-colour.
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Read on.
THE PANDEMIC BUDGET
In a few hours from the time this post hits your inbox Finance Minister Nirmala Sitharaman will rise in Parliament to present what is her third Union Budget. The big question is whether this will be her big moment?
The Economic Survey 2020-21, the annual economic report card for the country, suggests that this may be it. The moment where she comes into her own and answers her critics, particularly those who are harshly dubbing her as the “worst FM ever”. The report card suggests the job is half-done: India has been successful in seeing off the worst in its severest battle to contain losses to lives and livelihoods, but now it needs to refocus its energies on reviving growth. (Though in my view it goes over the top in declaring ‘victory’ against covid-19; still early days and fingers crossed is my take.)
According to the Survey the FM has, despite what her critics claim, successfully steered the country through its worst economic crisis ever. Lock downs enforced to contain the spread of SARS-COV-2, the virus which originated in Wuhan, China and causes Covid-19, devastated the economy. The first quarter ended June 2020 saw the economy contract by a record 23.9%. At that time many, expecting the worst, believed the contraction for the year would be in double-digits.
Nine months on, the verdict is being revised. The latest estimates peg the contraction at 7.5% for the entire year. Clearly, the economy is witnessing a turnaround from the third quarter beginning October 2020. In fact, the new bet is that the current quarter may actually register a marginally positive growth.
In fact, the economic rebound is surprising on the upside. The IMF in its latest prognosis for the world economy projects the Indian economy to record a growth (in real terms) of 11.5% in 2021—exactly what the Survey surmises. Some analysts however believe that the growth may be higher. Together with an inflation rate of about 5%, then India is looking at a nominal growth of 16.5% plus. To be sure the Economic Survey projects it at 15.4%. Even after discounting for the base effect (because of the record contraction last year) the rebound is remarkable.
Literally to hell and back.
This kind of a nominal growth is great news for tax receipts—which normally grow a little higher than the nominal growth rate of the economy. Terrific news for state governments. Their exchequers have suffered far worse than that of the union government.
So this round goes to the FM.
The Turnaround
How was this turnaround achieved then?
According to the Survey the strategy was simple: keep the gun powder dry till such time the economy showed signs of reviving; in short timing of the stimulus was crucial. Refusing to buckle under the chorus of pressure from several analysts, sell-past-the-date former FMs, economists, including some who had served in government and of course the ever needy India Inc, the FM and her team calibrated their intervention. It was a calculated risk.
The first stimulus was almost entirely directed towards saving lives. Exactly why on the one-hand you had stringent lockdown for 40 days and on the other the government turned out the stops in ensuring free food grains to 80 crore people. The pivot towards livelihood began from the second stimulus package and accelerated with the third stimulus.
Simultaneously the union government continued to push the envelope on long due reforms—including the controversial farm laws, something that has on been on the to-do agenda of every regime, including the Congress-led United Progressive Alliance, for the last 20 years.
Throughout the FM shunned fiscal largesse. Instead North Block chose to ink (a rare) partnership with the Reserve Bank of India (RBI) in lubricating the economy’s wheels. With the benefit of hindsight clearly this seems to have worked; in first arresting the downward business cycle and then reversing it.
Growth, Growth, Growth
What then are the next steps? According to the Economic Survey the FM has to pursue a simple mantra: growth, growth and more growth. And for this it makes out a strong case for the FM to stick with the counter-cyclical fiscal policy.
“For India, in the current scenario, when private consumption, which contributes 54% of GDP is contracting, and investment, which contributes around 29% is uncertain, the relevance of counter-cyclical fiscal policies is paramount,” the Survey argued.
It then goes to cite the International Monetary Fund to give the FM another pat on the back.
The Survey then goes on to exhort the FM to stick to the strategy of strategically spending its way to growth. It sees fiscal policy as the “economic bridge” to the medium and long-term health of the Indian economy.
“India’s fiscal policy must, therefore, not remain beholden to such a noisy/biased measure of India’s fundamentals and should instead reflect Gurudev Rabindranath Thakur’s sentiment of a mind without fear. In other words, India’s fiscal policy should be guided by considerations of growth and development rather than be restrained by biased and subjective sovereign credit ratings.”
We will have to wait and see if the FM concurs with the advice. Will find out in a few hours from now.
Recommended Reading
Last week in the inevitable rush of forwards received in my WhatsApp inbox I found this must read gem from the New Yorker.
Author Fran Lebowitz shares her product reviews laced with sharp, impish humour. Sharing a sample:
Selfie Ring Light (with Tripod)
People have this need to be constantly filming themselves.
I don’t understand why.
They think that something interesting might happen. They don’t want to miss it.
Let me clue you in—nothing interesting ever happens.
Maybe ten truly interesting things happen per year.
None of them in your apartment.
Till we meet again next week. Stay safe.
Hi Anil. Sent you an email
Well written Anil, looking forward to this budget very closely. Also please share your piece written in KT